Hungary has revealed plans to increase the minimum wage by 40% over the next three years, a move that Prime Minister Viktor Orban believes will help revitalise the economy, which is currently in a recession. However, critics argue that this could lead to higher inflation.
The government aims to stimulate economic growth ahead of the 2026 general elections, with Orban's Fidesz party currently trailing opposition leader Peter Magyar's Tisza party in most polls.
Magyar has also promised significant minimum wage hikes, which, at 266,800 forint ($677) per month, is the second-lowest in the European Union, just above Bulgaria.
The wage agreement outlines a 9% increase in the minimum wage for next year, followed by 13% and 14% raises in 2026 and 2027, respectively. While the raises are partly intended to prevent workers from seeking jobs abroad, Orban acknowledged that the salary hikes are based on an “optimistic” scenario where economic growth and productivity rise together.
“It’s a big question whether the economy can handle this wage level. The government is ready to assist employers with steps that make it possible to profitably operate their companies even with these salaries,” Orban said as he joined employers and labour unions in the signing of the agreement, Bloomberg reports.
All parties have agreed to reassess the wage hike targets if key indicators, such as economic growth and inflation, fall short of the government’s projections.
The central bank is especially focused on controlling inflation, which surged above 25% early last year before easing back to near the policymakers' 3% target last month.
“I would caution every decision maker against boosting economic policy at the cost of higher inflation” said National Bank of Hungary Deputy Governor Barnabas Virag during a parliamentary hearing on Monday.
At the same time, he stated that the minimum wage increases might not result in inflationary pressures if they are offset by higher corporate profits.
However, this may not always hold true, particularly for smaller and medium-sized companies that have struggled to align salary increases with productivity gains.
Taking inflation into account, real wage growth is expected to average 7% annually over the next two years, which is “certainly not in line with productivity growth in the medium term,” said Mariann Trippon, a Budapest-based economist at Intesa Sanpaolo SpA’s CIB Bank.
“In 2026-2027, if these real wage dynamics do not moderate, this could trigger an increase in cost-side and demand-side inflationary pressures and company closures,” Trippon added.